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Troublesome Trend Hits Digital Publishers

Hello Giggles will receive its share of ad revenue from Say Media later, part of a ripple effect in the industry.

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Say Media told publishers in its ad network that it will begin paying them on a 120-day payment schedule effective Apr. 1, slowing payment from an average of 85 to 90 days.

The move is a response to similar slowdowns from marketers and agencies, the company told its publishing partners. Procter & Gamble last year stretched its payment term to 75 days. Mondelez followed, going all the way to 120 days, citing goals like "efficiency" and "predictability of payment processes."

Adland has been worried about ripple effects, especially on smaller agencies and production companies that could struggle to float the costs of their work on behalf of clients. Say Media's decision shows the tactic is also affecting digital publishing.

"As you are probably aware, the last year has seen an escalation of brands, agencies and networks taking longer to pay," Say said in an email to publishers this week. "This has impacted companies across the advertising landscape, including Say Media. Like many others, we have to adjust our payment terms in an effort to combat this trend."

Say Media is a digital-only publisher behind more than a dozen websites, including both sites it owns, such as xoJane and ReadWrite, and sites it handles ad sales for, such as Fashionista and Honestly WTF. Those sites are not affected by the new, longer payment terms. But the company also places ads on 550 other sites, including Design Sponge, Hello Giggles and A Beautiful Mess. Those are the sites that will see payment arrive later, according to Matt Sanchez, Say Media's CEO.

"It's a cascading market force," he told Ad Age. "You have to react to it."

A report last December from the Association of National Advertisers found that 43% of marketers had lengthened payment terms for some marketing services in the past year. Marketers were most likely to have lengthened payment schedules for agencies, research firms and digital media, the report said.

"This has been a plague of the digital space for quite a while," said Patrick Dolan, exec VP and chief operating officer at the Interactive Advertising Bureau. "It's been historic that marketers and agencies have taken a while to pay their debts."

The agency-payment issue resurfaced last year when P&G announced its new payment terms, followed closely by Mondelez's similar decree on the matter. Johnson & Johnson had previously extended terms to as long as 75 days. Years earlier Anheuser-Busch InBev pushed its payment terms to as long as 125 days.

Complexities around fulfilling digital ad campaigns have worked to slow payment terms, but the latest moves from marketers and agencies will slow them down even further, according to Mr. Dolan. "Any time there's a sudden change in payment terms, it's always disruptive," he said.

Agency and media executives have both publicly and privately derided this strategy for crushing margins and rattling media companies. WPP Group Chief Executive Martin Sorrell said at last year's Cannes Lions festival that his companies aren't banks. "I don't think our purpose is banking … or extended payment terms or agreeing to supply payment terms in low-interest conditions," he said. '

Mr. Sorrell also pointed to the possible cascade effects this creates. "You're only as weak or as strong as your weakest link," he said. "And if there are people out there who are prepared to take those risks, then obviously it will compromise the whole industry."

Say's decision could have an outsize impact on some of those hundreds of sites in its network, many of which are effectively small businesses. They can, however, receive their payments earlier than 120 days -- for a price. Say has partnered with FastPay, which accelerates payments to 30, 60 or 90 days in exchange for a fee. Mr. Sanchez declined to name the fee, saying only that it was a percentage of the publishers' overall payment. All of Say's payments will now go through FastPay, he added.